Time-Inconsistency and Saving: Experimental Evidence from Low-Income Tax Filers

Damon Jones; Aprajit Mahajan

doi:10.3386/w21272

Time-Inconsistency and Saving: Experimental Evidence from Low-Income Tax Filers

Damon Jones & Aprajit Mahajan

Working Paper 21272

DOI 10.3386/w21272

Issue Date June 2015

We conduct a field experiment designed to test theories of time-inconsistency, namely a "Beta-Delta" model of present bias. The experiment takes place in the context of a saving decision made by low-income tax filers who can deposit their income tax refund into an illiquid account. We find qualitative evidence consistent with present-biased preferences. The tradeoff between an earlier payment or a later one is much more skewed toward taking the early payment when the decision is made on the spot than when the decision is made in advance. We estimate a β and δ of 0.34 and 1.08 over an 8-month horizon, respectively, which translates into an annual discount rate of 164%.

We are grateful for funding from the Social Security Administration via the Center for Financial Security, University of Wisconsin, Madison, as a part of the Financial Literacy Research Consortium and for funding from the National Institute on Aging. We are thankful for useful comments from Benjamin Lockwood and seminar participants at Stanford University, the University of Chicago, the 2012 Behavioral Economics Annual Meeting and Wharton. All opinions expressed are solely those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. This RCT was registered in the American Economic Association Registry for randomized control trials under Trial number AEARCTR-0000730.
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Time-Inconsistency and Saving: Experimental Evidence from Low-Income Tax Filers

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